**[Citigroup Predicts a "Dovish Surprise" Brewing at the Fed: Core Inflation Nearing 2% is Key]** BlockBeats News, October 9 — Citigroup believes that if the short-term growth rate of core PCE continues to hover around the annualized level of 2%, the tightening path following the September rate hike may change. The key lies in whether the subsequent rate hikes originally anticipated by the Federal Reserve will still occur, rather than an immediate pivot to rate cuts. Citigroup economist Andrew Hollenhorst stated in a report that the U.S. economy is not overheating, saying, "We have not seen strong reasons for rate hikes. The minutes of the September meeting show that at least some officials also did not judge the economy to be clearly overheating. Instead, they agreed to raise rates based on risk management considerations due to the upward risks to inflation. This implies that if underlying inflation continues to cool, the preventive rationale for the September rate hike could quickly weaken. Currently, most officials still expect one more rate hike before the end of the year, but the minutes do not indicate urgency for consecutive hikes in October." Citigroup is focusing on the month-over-month core PCE rather than the still-elevated year-over-year figure: core PCE rose 0.2% month-over-month in August, with July revised to 0.1%, and August year-over-year growth at 3.0%. If the annualized rate remains around 2% for several consecutive months, it should be considered as inflation falling at the "sufficient pace" required by the Federal Reserve. Citigroup is also cautious about the transmission of energy shocks to core inflation, noting that businesses have not yet widely passed on energy costs to core prices. The baseline scenario predicts that core inflation will remain low over the next four months and points out downside risks to core inflation in September. The so-called "dovish surprise" is more likely to mean that the rate hike cycle ends earlier than the dot plot and market expectations, rather than a swift transition to rate cuts. Federal Reserve Chair Waller has not yet clarified the standard for "sufficient pace," but several consecutive months of core PCE annualized at around 2% could serve as a reasonable reference. [Original Link]